DB Plan with 3 EE's (2 HCEs, 1NHCE) with funding level over the 25% deductible limit. Can I add a Safe Harbor 401(k) Plan?

[Guest RMPension]

I have a DB Plan with 3 EE's (2 HCE's, 1 NHCE). They are funding for a maximum DB benefit for the owner which makes the contribution well over the maximum 404 deductible level. Can I add a Safe Harbor 401(k) plan so that the owner and his spouse and contribute the 402(g) limit plus catch-up into that plan. If the safe harbor 3% non-elective is used, the additional required contribution for the NHCE would be around $300. As I understand the deductibility rules, This contribution would be non-deductible and the sponsor would be required to pay an 10% tax on the $300 ($3.00). The total cost would therefore be $303 to add an additional $36,000 to the owners/Spouse account.

Do I have this correct? Is there any other reason not to do this? If we use the Match safe harbor and the 1 NHCE does not defer, there would be no contribution nor a tax. Correct?

[AndyH]

Somebody told me recently that the excise penalty did not apply in this situation to a safe harbor contribution. I have not had time to check this out for myself. If true, this must be a fairly recent change. Perhaps some fish or mammal could confirm or deny?

[Belgarath]

See IRC 4972©(6)(A). Remember that this is only for potential penalty abatement, and does not allow the nondeductible contribution to become deductible.

[Blinky the 3-eyed Fish]

4972©(7) too has relevance here. Also, 10% of $300 is $30, at least according to my math.

[Guest RMPension]

Sorry about my math skills. 10% of $300 is $30. Maybe I should replace the batteries in my calculator.

[AndyH]

RM, if you can't do 10% of $300 without a calculator, then I feel much better about my non-calculator skills.